KLM Royal Dutch Airlines
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- KLM Royal Dutch Airlines
P.O. Box 7700
1117 ZL Schiphol
- Main hub
- Amsterdam Schiphol Airport
- Business model
- Full Service Carrier
- Domestic | International
- Airline Group
- Part of Air France-KLM S.A.
- Joined Alliance
- Association Membership
- Codeshare Partners
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Air Europa Lineas Aereas
China Eastern Airlines
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Based in Amsterdam, KLM is the national airline of the Netherlands. Part of the Air France-KLM Group, KLM operates an extensive network which includes services within Europe and to Asia, Africa, North America, Central and South America and the Middle East. KLM is a founding member of the SkyTeam alliance.
Location of KLM Royal Dutch Airlines main hub (Amsterdam Schiphol Airport)
2,353 total articles
216 total articles
KLM: a decade after Air France merger, the smaller, but more profitable partner also needs cost cuts
KLM, the world's oldest airline still operating, turned 95 in Oct-2014, after passing the 10th anniversary of its merger with Air France earlier this year. A pioneer of the international hub and spoke model, KLM's continued operational effectiveness is illustrated by its industry leading load factor. Although, before the merger, it often struggled for profitability, it has consistently achieved higher operating margins than its sister airline Air France since their 2004 union.
In spite of these marks of success, KLM CEO Pieter Elbers, promoted to replace Camiel Eurlings in Oct-2014, is asking employees to suggest ways of making cost savings of EUR700 million over five years. This is to fund widebody upgrades and service enhancements, including new seats for 15 Boeing 777 aircraft and business lounge expansion. KLM is also placing a freeze on new cabin crew hires and giving consideration to job reductions.
Much of the commentary on Air France-KLM Group's new Perform 2020 programme has focused on Air France, loss-making since FY2009. In this report, we look at KLM's post merger track record at a time when its margin is under pressure.
The history of intercontinental passenger routes into secondary Chinese cities is brief: as recently as 2010 there was on average just one or more long-haul flight a day into a secondary market. This more doubled in 2011, and in 2015 there will be 11 flights a day. These will be spread across 26 city pairs, up from only four in 2010. Most secondary long-haul routes are to Europe, with the Middle East and Australia prominent. North America is catching up.
Foreign airlines have led the push, namely KLM and Lufthansa. Etihad Airways and Qatar Airways were also some of the first before being joined by others including British Airways and United Airlines. Chinese carriers are gaining a presence on secondary long-haul routes, largely as a result of incentives and subsidies. In 2015 so far there will be eight foreign airlines operating secondary routes compared to five Chinese airlines. 2015 marks the first time a secondary long-haul route (Etihad's Abu Dhabi-Chengdu) will be operated daily across the year. The routes as a group face sustainability challenges, with losses common, but more growth is still likely.
easyJet's most recent annual results, for the financial year ended Sep-2014, confirmed its position as one of Europe's most profitable airlines. Its pre-tax profit of GBP581 million was 22% higher than last year and its operating margin of 12.8% was up 1.1 ppts from last year. Among European airlines, easyJet ranks second only to Ryanair's 16.5% margin for the same 12 month period. According to its own measure of return on capital employed, it ranks first among leading European airlines and in the first quartile of companies from all sector's in the UK's benchmark FTSE 100 stock market index.
Significantly, these results seem to have silenced easyJet's founder and largest shareholder Sir Stelios Haji-Ioannou, who has also been its greatest critic in recent years since resigning from the Board in 2010. The proposed annual dividend will be 36% higher than last year and Sir Stelios' family stands to receive GBP63 million. One of the rare successes in the airline sector, CAPA analyses easyJet's strengths, weaknesses, opportunities and threats in this report.
IAG confirms its leadership among Europe's Big Three after growing 3Q profit and raising 2014 target
International Airlines Group (IAG) has improved its profitability once more in 3Q2014 and raised its target for FY2014. This sets IAG well apart from Air France-KLM and Lufthansa and confirms its leadership position among Europe's Big Three legacy airline groups. For the group as a whole, unit cost reduction more than compensated for weaker unit revenues.
Nevertheless, the development of its principal airlines was not uniform. IAG's LCC subsidiary Vueling Airlines is still the only profitable LCC subsidiary of any Big Three parent, but its margin fell as its rapid expansion into new markets led to costs being added faster than revenues. British Airways recorded a solid improvement in its margin, built on the performance of its long-haul network (North America in particular). Iberia's turnaround was confirmed by a more than doubling of its 3Q operating profit as its lease-adjusted margin equalled that of BA.
IAG must continue to improve its financial performance, so that it can meet its cost of capital, a target that it has set for 2015. Achieving this will require some assistance from the market, but this is a valuable prize that is now within its grasp.
The fall in Air France-KLM's 3Q2014 operating profit more than offset improvements recorded in 1H2014. This deterioration in 3Q2014 was largely as a result of the 14 day pilot strike in Sep-2014, which hit the operating result by EUR330 million. Nevertheless, even without the strike effect, unit revenue weakness weighed on the underlying performance of the group and lowered the like for like operating result.
Air France-KLM expects passenger capacity growth in long-haul markets from Europe to slow a little from 6.3% in 3Q2014 to 5.5% in 4Q2014. It plans to keep its own passenger capacity flat, with significant cuts in point to point capacity, but these price pressures look unlikely to dissipate quickly.
The company says that its Transform 2015 programme, which mainly focused on cost and debt reduction, is on track and it is already implementing key initiatives under its new Perform 2020 plan. The ratification by pilot union membership of the recent draft agreement over the growth of Transavia would provide an important psychological boost.
American Airlines is sticking to its overall bullish view on demand going forward, buoyed by strong top-line 3Q2014 results despite its outsized exposure to Venezuela and the run-on effects of capacity cuts it has made on service to the country.
The airline is taking steps to mitigate oversupply in some of its geographic entities. But some of its peers are not following suit, which could create some short term headwinds until a rational supply-demand balance is restored.
American in particular will start to see relief from Venezuela’s currency issues in early 2015 after its network adjustments to the country pressured unit revenues in 2H2014.